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Selection of investors in land-using investment projects

Residential and commercial land prices in Vietnam often elicit outrage from the first-time visitor or client, calm explanations of various ‘social facts’ from the permanent resident, consternation and sit-ins from the elderly folks often parked in front of peoples’ committees adorned with (state-endorsed) revolutionary posters, and, depending on the relevant employer, cries of ‘barriers to further foreign investment’ or ‘obstacles to an equitable rural-to-urban transition’ from the concerned corps of economists and development experts deployed in Vietnam from time to time.

Land prices, of course, are the product of, among other variables (eg regulatory powers such as zoning), supply and demand. In Vietnam, consumer demand for land is increasing as incomes rise and offshore remittances flow in; however, consumer demand remains bound by relatively limited access to credit and relatively high equity-to-debt ratios, even when credit is accessible.

The supply of land, on the other hand, is limited by a complicated regulatory situation that may require decades to resolve. A predictable demand and unpredictable supply have begotten some deformed offspring. Vietnam’s major cities and popular tourist areas are littered with scars caused by investment projects (failed, languishing and imagined) that have obtained prime land parcels and created a confusion of partially constructed buildings and wild flora enclosed within otherwise empty space.

Within this context, the MPI issued Circular 03 dated 16 April 2009. This focuses its regulatory gaze on the process and qualifications of selecting investors for projects requiring substantial tracts of land or high-value land.

One mechanism, among others, employed by Circular 03 to ensure the efficient use of land is to subject high-value commercial land to tendering and to require minimum debt-to-equity ratios of those selected (not less than 15 per cent of the total anticipated investment capital for investment projects using less than 20ha of land area, and not less than 20 per cent for investment projects using more than 20ha of land).

Circular 03 provides that the selection of investors will be tendered if two or more qualified investors register an interest to carry out the investment project. It also requires investors to submit a bid bond of 1 to 3 per cent of the price indicated in the bid documents and a performance bond of 5 to 10 per cent of the total proposed investment capital.

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